Broadgate: Market News 19/2

The S&P 500 dipped in a late decline on Friday as Wal-Mart dropped following a report of a weak start to February sales, though the index just barely extended its streak of weekly gains to seven.

Equities were little changed for much of the session, with investors finding few reasons to make big bets following an extended rally on Wall Street, but stocks turned lower in afternoon action.

Wal-Mart Stores Inc dropped 2.1 percent to $69.30 after Bloomberg News reported a weak start to February sales, citing internal company e-mails. The stock was the biggest decliner on the Dow, while the S&P retail index fell 0.5 percent.

“When a retailer of this size comes out with this kind of lousy news, the whole market can fall off, especially on a Friday afternoon,” said Mike Shea, trader at Direct Access Partners in New York. “However, I’m not worried that this is indicative of any larger macro issue with retail.”

Equities have struggled for direction recently, with major indexes moving only slightly in the past several sessions. The S&P didn’t end a session with a move greater than 0.2 percent at all this week.

The benchmark index, up 6.6 percent so far this year, is facing strong technical resistance near the 1,525 level. But investors, expecting the index to advance further in the quarter, have held back from locking in profits.

“There’s no news that suggests the strong underpinning for stocks isn’t appropriate. We may have gotten ahead of ourselves, but there’s also an absence of bad news,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

Many investors are starting to look ahead to a debate in Washington over sequestration, automatic across-the-board spending cuts put in place as part of a larger congressional budget fight. The cuts are due to kick in March 1 unless lawmakers agree to an alternative.

“This had been far enough out to not yet become an impediment for stocks, but it will start to move into the forefront and cause people to take a bit of a jaundiced eye towards the market,” said Luschini, who helps oversee about $54 billion in assets.

The Dow Jones industrial average was up 11.27 points, or 0.08 percent, at 13,984.66. The Standard & Poor’s 500 Index was up 0.32 points, or 0.02 percent, at 1,521.70. The Nasdaq Composite Index was down 0.21 percent at 3,192.03.

For the week, both the Dow and Nasdaq fell 0.1 percent while the S&P rose 0.1 percent in its seventh straight week of gains, a period during which the index rose 8.4 percent. The last such seven-week run was between December 2010 and January 2011.

The New York Federal Reserve said manufacturing in New York state expanded for the first time in seven months, while Thomson Reuters/University of Michigan’s preliminary reading of consumer sentiment rose from the prior month and beat expectations.

But U.S. manufacturing fell in January after a rise in the prior month.

Wall Street’s gain thus far in 2013 has largely been driven by strong corporate earnings, while data indicated some weakening in economic conditions.

A surge in merger and acquisition activity, with more than $158 billion in deals announced so far in 2013, has given further support to the equity market as it points to healthy valuations and bets on the economic outlook.

Herbalife shares cut earlier gains to rise 1.2 percent to $38.74. Late Thursday, billionaire investor Carl Icahn said in a regulatory filing that he now owns 13 percent of Herbalife and was ready to put it in play.

MeadWestvaco Corp climbed 12.5 percent to $35.65 as the biggest percentage gainer on the S&P index after activist investor Nelson Peltz’s Trian Fund Management LP said it had bought about 1.6 million shares of the packaging company.

Burger King Worldwide shares gained 4.7 percent to $17.36 after it beat estimates with a 94 percent rise in fourth-quarter profit, thanks to new menu additions.

Oil service stocks declined, weighed by a 5.1 percent drop in shares of Transocean to $56.26, after the rig contractor reported its fleet update and Deutsche Bank cut its rating on the stock to “sell.” The PHLX oil service sector lost 1.5 percent.

Slightly more stocks fell than rose on the New York Stock Exchange while about 50 percent of Nasdaq shares ended lower. About 6.69 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, above the daily average so far this year of about 6.48 billion shares.

Currencies

The yen rose on Tuesday after Japanese ministers played down talk of foreign bond buying by the country’s central bank, a day after Prime Minister Shinzo Abe said such a policy could be one option for monetary easing.

Finance Minister Taro Aso told a news conference that he was not considering foreign bond purchases, while Economy Minister Akira Amari said Abe’s comments on Monday simply referred to policy options countries have in general.

Their comments sent the dollar as low as to 93.56 yen, though it pared much of the losses to last trade at 93.90 yen, 0.1 percent below its late European session levels. U.S. financial markets were closed on Monday for the President’s Day holiday.

While sentiment towards the yen is weak, the dollar has hesitated to re-test a 33-month high of 94.47 yen set last week, due in part to selling by option players hedging their barrier option positions at 94.50 yen.

“The fact that the dollar/yen couldn’t break above last week’s high yesterday points to the strength of the resistance,” said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

Some strategists also said the yen’s fall could lose momentum for now as investors became wary of betting on further yen weakness until there is more clarity on the next Bank of Japan governor.

Economy Minister Amari said on Tuesday the government will decide on Bank of Japan’s new governor and two deputy governors after Prime Minister Abe returns from a trip to the United States on February 21-24.

Sources have told Reuters that former top financial bureaucrat Toshiro Muto is the leading candidate to become Japan’s next central bank governor, replacing Masaaki Shirakawa.

“Whoever becomes governor, the BOJ will have to take bold easing steps. I don’t think the yen’s downtrend has changed, though its pace might slow a little bit from now,” said Seiya Nakajima, chief economist at Itochu Corp.

HUNG PARLIAMENT

The euro licked its wounds near a three-week low against the dollar after European Central Bank President Mario Draghi reiterated his wariness about the currency’s appreciation.

The euro stood at $1.3343, little changed from late European levels and a tad above a three-week low of $1.3306 hit last Friday.

Speaking before the European Parliament, Draghi said the euro’s exchange rate was not a policy target but was important for growth and stability, adding that appreciation of the euro “is a risk”.

The euro has been under selling pressure in the wake of data recently revealing a deeper-than-forecast euro zone recession and on concerns about the outcome of an election in Italy at the weekend as Prime Minster Mario Monti’s reforms have drawn criticism from all the political spectrums.

“Should the election lead to a hung parliament and raise doubts about whether Italy will pursue Monti’s reform policy, that would give speculators such an easy chance to sell the euro,” said Itochu’s Nakajima.

Against the yen, the euro stood little changed at 125.25 yen, though it has lost a bit of momentum after hitting a 34-month high of 127.71 yen earlier this month, having gained almost 27 percent since mid-November at that point.

An immediate focus for the currency is the German economic sentiment index due at 11:00 a.m. (1000 GMT). Economists expect the ZEW index to improve to a 2-1/2-year high.

As the euro wilted, the dollar index held firm near a six-week high of 80.727 hit on Monday. It last stood at 80.653 but faces resistance from its 200-day moving average at 80.940.

The British pound was listless near a seven-month low of $1.5438 on Monday after a comment from Bank of England policy maker that the currency may need to fall further. It last stood at $1.5462.

Sterling is also coming under pressure from recent poor data that has stoked worries over another British recession, as well as speculation that incoming BoE chief Mark Carney may take drastic easing steps akin to the policies that Japan’s government is pressuring the Bank of Japan to adopt.

Source: Reuters.com

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